As we discussed yesterday, the IRS has expended the FBAR Streamlined Procedures program for resolving delinquent or insufficient FBAR filings. Today we are discussing the requirements to take advantage of the new streamlined procedures. There are general requirements that apply to domestic taxpayers and foreign taxpayers alike. Then there are a set of specific requirements for each of those groups.
In general, to be eligible for the streamlined procedures, a taxpayer must:
- owe tax – otherwise use the delinquent FBAR submission procedures;
- be an individual or an estate of an individual (no corporations, partnerships, LLCs and so on ),
- have filed or will be filing or amending the last three years’ returns to show the tax owed,
- certify that the failure to comply was not willful, and
- not be under audit.
FBAR Streamlined Procedures – Generally
These procedures apply to both the Foreign and Domestic Procedures unless stated otherwise.
You must file, if you haven’t already, or amend returns for the three previous tax years that have already closed, considering any timely filed extensions, showing the correct tax liability. You must write “Streamlined Foreign Offshore” or “Streamlined Domestic Offshore” depending on your circumstances in red at the top of each return to ensure that the returns are processed through the special procedures.
You must submit all tax due and any statutory interest due to late payments. Put your taxpayer number on the check.
You must file FBARs for the most recent 6 years for which the due date has passed. You are required to file these delinquent FBARs electronically at FinCen. On the cover page of the electronic form, select “Other” as the reason for filing late. An explanation box will appear. In the explanation box, enter “Streamlined Filing Compliance Procedures.”
- that you are eligible for the Streamlined Foreign Offshore Procedures;
- that all required FBARs have now been filed ; and
- that the failure to file tax returns, report all income, pay all tax, and submit all required information returns, including FBARs, resulted from non-willful conduct.
- if you are residing in the U.S. you must also certify that the included miscellaneous offshore penalty amount is accurate (see below).
You must submit the original signed statement and you must attach copies of the statement to each tax return and information return being submitted through these procedures. You should not attach copies of the statement to FBARs. Failure to submit this statement, or submission of an incomplete or otherwise deficient statement, will result in returns being processed in the normal course without the benefit of the favorable terms of these procedures.
Foreign or Domestic Procedures?
The IRS rules determine which procedure you should use by a matter of exclusion. If you do not meet the requirement for the foreign offshore procedures, then you must use the domestic procedures.
The eligibility requirements for the foreign procedures differs by whether you are a U.S. citizen or lawful permanent resident – green card holder – or not.
U.S. Citizen or Green Card Holder
For the last three tax years – that is tax years before the current one – the individual must not have had a U.S. “abode” or not have been in the United States for more than a total of 330 days. In this case, abode means where you maintain your economic, family, and personal ties.
Those who are not U.S. Citizens or Green Card Holders
Those who are not citizens of the U.S. or lawful permanent residents must not be substantially present in the United States during the previous three tax years. According to the Substantial Presence Test, you will be considered a U.S. resident for tax purposes in any calendar year that you meet the substantial presence test. To meet this test, you must be physically present in the United States on at least:
- 31 days during year in question, and
- 183 days during the 3-year period that includes the year in question and the two previous years, counting:
- All the days you were present in the year in question, and
- 1/3 of the days you were present in the previous year, and
- 1/6 of the days you were present in the year before that.
5% Miscellaneous Offshore Penalty for Domestic Taxpayers
One of the biggest differences is the imposition of a 5% miscellaneous offshore penalty for domestic violators. While the foreign individuals are only liable for the tax and interest, non-foreign taxpayers have the addition of a 5% penalty on the highest aggregate balance or value in the period covered by the FBAR filings. For this purpose, the highest aggregate balance/value is determined by aggregating the year-end account balances and year-end asset values of all the foreign financial assets subject to the miscellaneous offshore penalty for each of the years in the covered tax return period and the covered FBAR period and selecting the highest aggregate balance/value from among those years. The amount of the miscellaneous offshore penalty must be submitted with the application package in addition to any tax owed.
If you have not already come into compliance with necessary FBAR filings, the FBAR streamlined procedures make this a good time to do it.